Last week, data showed that the US trade deficit skyrocketed to a record $131.4 billion in January as companies scrambled to stockpile prior to President Donald Trump’s Schrodinger tariffs.
While US economic data is generally disappointing, the worsening news about imports has caused some uncertainty in particular. Due to the mechanism of measuring and calculating gross domestic product (with imports being subtracted to measure domestic production avoiding double counting), the growing trade deficit has helped send the Atlanta Fed’s widely followed “GDPNOW” real-time economic forecast model to the tail spin.
The 2.8% contraction the model then spewed was later revised to -1.6% on Friday, following the latest US employment numbers. But the nasty GDPNOW reading naturally sparked many surprising headlines about how the US appears to be careful towards a short recession.
This is Thomas Ryan, an economist at Consultant Capital Economics.
The January swell of the trade deficit to a record high was attributed to another massive surge in imports as businesses rushed to tracking orders before new country and product-specific tariffs came into effect.
. . . This big drag from net trades caused most of the damage to first quarter GDP estimates as data inventory accumulation has not been offset. The good news is that this should be reversed in the second quarter as imports normalize without corresponding stock reductions. Therefore, we are predicting a strong rebound in GDP growth.
However, the main perpetrators were a really massive surge in US gold imports, as traders also wanted to go ahead of potential tariffs. And this is very important when we think about economic impacts.
The motives are the same (avoiding tariffs), but the economic impact of movements in gold and other goods is significantly different. While the majority of imports are used for consumption or production of other things, gold tends to be inert and useless on vaulted ceilings.
TL;DR is that while all uncertainty will undoubtedly be accurate to ensure that the economic sacrifices are undoubtedly accurate, horror readings on the Atlanta FED’s GDPNOW model are probably relatively safe to ignore.
The impact of gold on the US trade balance is not easily spotted as gold bar movements are often hidden in US statistics. They are mysteriously incorporated into the category “finished metal shape,” which accounted for $20.5 billion from a $36.2 billion increase in goods imports in January.
The word “unprecedented” is a worn-out word, but you can see how extreme the data for January is.
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Imports of other goods also increased, but to a much smaller extent. For example, drug imports jumped to $5.2 billion per month, a mere 1.5 times higher than last January. Passenger car imports rose to $1 billion, but remained lower than last January.
In other words, bullion was the boss of January’s trade numbers. As Goldman Sachs economist David Merriel said:
It noted that much of the trade deficit growing since November reflects higher gold imports. This is excluded from GDP as it is not consumed or used in production. Details from the Trade Balance Report show that in fact, an increase in gold imports contributed to a large portion of the January import increase.
If you’re not sure about the importance of money yet, take a look at US trade with Switzerland.
Switzerland is the world’s largest bullion refining and transport hub and home to the world’s largest commercial gold trading hub (along with the UK). And the US trade deficit with Switzerland exploded to $220 billion in January. This is roughly the scale of the US commodity trade deficit with China.
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Import data for US goods is consistent with Swiss customs data showing gold exports from the country to the US rose from 64.2 tonnes in December to 192.9 tonnes.
To see similar trends elsewhere, you can enter the various countries in the above mentioned sites. For example, the US has primarily enjoyed a trade surplus with Australia over the past decade, but Australia’s surge in gold exports helped push the January trade balance into negative territory.
However, Switzerland appears to have been a big deal, and further evidence of how gold was skewed in January.
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Perhaps fearing that they would be seen as falsely predicting a “Trump Session,” Atlanta came out on Friday, revealing the GDPNOW model and Gold Glitch accountant.
GDPNOW distinguishes gold from other imports, but the Bureau of Economic Analysis is a comprehensive within GDP when tallying the total net exports. Removing gold from imports and exports increases both GDPNOW’s topline growth forecast and net export contribution to that forecast by about 2 percentage points.
Today’s topline growth forecasts also increased today as data in labor market reports today have been stronger than expected based on February data received by the model prior to its release.
Therefore, “gold-adjusted” GDP forecast of 0.4% growth. This isn’t great, but it’s very different from the scary heading numbers that the Atlanta Fed model still shows.
Goldman Sachs’ own gold-adjusted GDP forecast was more optimistic at 1.3% in the first quarter, but on Friday it cut its 2025 growth forecast, increasing the “probability of a recession” to 20%.
Below, in case there is an emphasis on Alphaville, here are the key points of the latest economic updates for investment banks:
– The higher the tariffs, the higher the consumer prices. Without tariffs, we expected that core PCE inflation would fall from 2.65% in January to 2.1% by December 2025 compared to the previous year. Previous tariff assumptions predicted that core PCE inflation would remain in the mid-term of the year. Our new tariff assumption means that instead will rise slightly at about 3% year-on-year and peak at about 3.3%, and in the risk scenario it will peak at about 3.3%.
– Also, larger tariffs could hit GDP more vigorously through tax-like effects on disposable income and consumer spending, as well as the impact on the financial position and uncertainty of businesses. Our previous tariff assumptions implied a peak hit of -0.3PP of year-on-year GDP growth, but our new assumptions imply a peak hit of -0.8pp. In the risk scenario, this will grow to -1.3pp.
– This additional 0.5pp drug was mounted from the new, massive tariff assumption, reducing the 2025 Q4/Q4 GDP growth forecast from the previous 2.2% to 1.7%. This means GDP growth is slightly below potential, not just above its potential. The unemployment forecast has been increased by 0.1pp to 4.2%.
– We’ve also slightly increased the odds of a 12-month recession from 15% to 20%. We raised only a limited amount at this point, as policy changes are considered a significant risk. The White House has the option to pull back to the White House if the downsides seem more serious. The risk of a recession would be even greater if the policy is moving in the direction of our risk scenario, or if the White House continues to commit to policies in the face of much worse data.
We’ll see more details when the first appropriate official US GDP estimates for the first three months of that year were published on April 30th.
